PENNSYLVANIA CO. ETC. v. United States

Citation146 F.2d 392
Decision Date21 December 1944
Docket Number8278.,No. 8277,8277
PartiesPENNSYLVANIA CO. FOR INSURANCES ON LIVES AND GRANTING ANNUITIES v. UNITED STATES (two cases).
CourtUnited States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Carlton Fox, of Washington, D. C. (Samuel O. Clark, Jr., Asst. Atty. Gen., Sewall Key and J. Louis Monarch, Sp. Assts. to Atty. Gen., and Gerald A. Gleeson, U. S. Atty., and Thomas J. Curtin, Asst. U. S. Atty., both of Philadelphia, Pa., on the brief), for appellant.

Francis H. Bohlen, Jr., of Philadelphia, Pa. (Saul, Ewing, Remick & Harrison, of Philadelphia, Pa., on the brief), for appellees.

Before JONES, GOODRICH, and McLAUGHLIN, Circuit Judges.

JONES, Circuit Judge.

These appeals grow out of suits for the recovery of tax payments made for certain years by the plaintiff-trustee under protest. Neither the amounts of the payments nor the character of the taxes for which the assessments had been made need be stated with particularity. The question involved in both appeals concerns the legislative intent of a provision in the Revenue Acts under which the taxes were imposed.1 Specifically, each of the applicable statutes provides that "The term `corporation' includes associations, joint-stock companies, and insurance companies."2

The question here presented is whether the particular trusts involved in the instant suits (which were tried together below) qualify as associations within the intent of the Revenue Acts so as to render them taxable as corporations. The trial court held that the trusts were pure trusts and were, therefore, not taxable. Accordingly, the court entered appropriate judgments for the plaintiff-trustee from which the Government appeals. Both appeals will be dealt with in this one opinion.

The trusts involved are what are usually termed investment trusts. The creators of the trusts (in the one case, the Independence Shares Corporation, and, in the other, Bank and Insurance Shares, Inc.) each deposited with The Pennsylvania Company for Insurances on Lives and Granting Annuities, as trustee, under respective agreements and deeds of trust, certain shares of the common stock of designated corporations. Against the deposited shares (grouped as units) certificates evidencing participating interests in a group of the deposited shares, as specifically identified on the back of the trust certificates, were issued by the trustee to the depositor which sold them to the public. The trust certificates were in registered form and were transferable by the registered holders thereof. The stock certificates for the specified shares (composing the deposit units) and any other securities deposited with the trustee were held in the name of the trustee which received all income and proceeds therefrom.

Under the agreement and deed of trust in the case of the Independence Shares Corporation, the trustee was empowered to dispose of deposited stock only upon written notice from the depositor. Such notice could be given, in the discretion of the depositor, only if (1) any one or more of the companies (stock wherein helped make up a deposit unit) failed to pay a usual dividend on its stock or (2) "* * * if, at any time, the Depositor should receive information that in its opinion would warrant the conclusion that the stock of any such Company may or will become substantially impaired in value, * * *" or (3) "In case any event shall occur not specified in the provisions of this Agreement, requiring the exercise of discretion in the administration of the Deposit Units, the Trustee shall take such action with respect thereto as the Depositor, in its absolute discretion, shall direct in writing * * *." The Independence Shares agreement also authorized the trustee to sell or convert deposited trust shares in any company which split up its common stock or in any of such companies that became party to a corporate merger or consolidation. As a result of one or more of the above provisions, certain of the deposited stocks were eliminated from the Independence Shares trust but no other stocks were ever added thereto or substituted for the designated trust shares.

Distributions of income from the deposited shares, after payment of certain expenses, were made semiannually by the trustee to the trust certificate holders and, on the date provided for the termination of the trust, the trustee was to make final distribution, to the trust certificate holders, of the cash proceeds after liquidation or sale of all of the securities remaining in the trust.

The holders of the trust certificates had the following rights under the trust agreement: (1) To receive semiannual distributions of income and final distributions of corpus, (2) to convert a trust certificate into its proportionate interest in the shares of deposited stock then constituting the cognate unit, plus a cash equivalent for the proportional interest in the residual cash for distribution in the unit, and (3) to receive in cash the redemption value of a trust certificate upon its surrender for redemption. The holders of the trust certificates had no voting rights nor was there any provision for meetings of the trust certificate holders.

The liability of the depositor and the trustee was limited to acts of willful malfeasance or gross negligence. The trust had no directors, officers or employees. Nor had it any office, stationery, seal or minute book. The trust was administered by its trustee (a Pennsylvania corporation) which was authorized by its charter to accept and discharge the duties of a trustee. The agreement also provided for the substitution of a trustee in certain presently immaterial contingencies and for the succession of the substituted trustee to all rights, powers and duties devolving upon the trustee under the agreement with respect to the deposited property.

The provisions of the agreement and deed of trust between Bank and Insurance Shares, Inc., as depositor, and The Pennsylvania Company etc., as trustee, do not differ materially from those in the case of Independence Shares Corporation as above set forth. Under the terms of the Bank and Insurance Shares, Inc. agreement, participating trust certificates were to be issued by the trustee for each 500-share unit of stock in certain designated New York banks and trust companies which the depositor was to deposit with the trustee. The composition of the deposit unit could be changed by the depositor only "If, at any time, any Company, any of whose stock is included in a unit or units held by the Trustee hereunder, shall liquidate voluntarily or otherwise, or if a Receiver be appointed for a substantial portion of its property, or if it shall fail for one year to pay any dividend on such stock, or if, at any time, the Depositor shall receive information that in its opinion would warrant the conclusion that the stock of any such Company may or will become substantially impaired in value, or if in the opinion of the Depositor the stock of any such Company is not reasonably obtainable to complete additional units, then the Depositor shall have the right but not the obligation in accordance with its sole discretion and judgment to instruct the Trustee to sell such stock * * *." Under the foregoing provision, certain shares of stock were from time to time eliminated from the Bank and Insurance Shares trust but no other shares of stock were ever added thereto or substituted for the designated trust shares.

A business trust constitutes an association within the meaning of the...

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3 cases
  • Commissioner of Internal Revenue v. Pierce
    • United States
    • United States Courts of Appeals. United States Court of Appeals (2nd Circuit)
    • 27 Diciembre 1944
    ......La Budde, 7 Cir., 128 F.2d 838; Kaufman v. United States, 4 Cir., 131 F.2d 854. The parenthesis applies to cases where the ......
  • Landau's Estate v. COMMISSIONER OF INTERNAL REVENUE, 11335.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (3rd Circuit)
    • 10 Febrero 1955
    ...3 Cir., 1943, 138 F.2d 869, certiorari denied 321 U.S. 788, 64 S.Ct. 787, 88 L.Ed. 1079; Pennsylvania Co. for Insurances on Lives and Granting Annuities v. United States, 3 Cir., 1944, 146 F.2d 392. The petition filed in the Orphans' Court of Allegheny County did not seek a liquidation of t......
  • COMMISSIONER OF IR v. United States & Foreign S. Corp.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (3rd Circuit)
    • 22 Marzo 1945
    ...in those trusts, which have been held to be "associations". Pennsylvania Company for Insurances on Lives and Granting Annuities v. United States, 3 Cir., 1944, 146 F.2d 392. There was no "large supervisory and directory powers over the trustee, directing the trustee in the management, inves......

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